Oil prices edged higher on Friday, but posted a weekly loss on the prospect of more supply entering global markets amid positive US-Iran talks and potential output increases from Opec+ members.
Demand concerns as a result of the trade war between the US and China, the world’s two largest economies, are also weighing on oil prices.
Brent, the benchmark for two thirds of the world's oil, settled 0.32 per cent higher at $66.87 a barrel, taking losses to 1.6 per cent over the week. West Texas Intermediate, the gauge that tracks US crude, gained 0.23 per cent to $63.02 per barrel, marking a weekly decline of 2.6 per cent.
The outlook for oil remains “negative on higher supply and lower demand prospects”, on the back of the International Monetary Fund’s sharp downside revisions to global growth forecasts, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.
This week, the IMF sharply lowered its near-term outlook for the world economy, citing a radical change in trade policies led by US President Donald Trump's tariff regime.
The IMF projects global growth to slow from 3.3 per cent last year to 2.8 per cent this year – half a percentage point lower than its January forecast. Growth is expected to recover to 3 per cent next year, although it still represents a downward revision from the fund's previous estimate of 3.3 per cent.
Other developments are also impacting oil prices, including positive talks between the US and Iran over Tehran’s nuclear programme, as well as a potential output increase from Opec+ after the producers group decided to add 411,000 barrels per day to the market in May.
Several Opec+ members had suggested the group accelerate oil output increases for a second month in June, Reuters reported earlier this week.
“Crude continues to face something of a 'perfect storm' at present, with headwinds stemming from both the demand and supply sides, as global growth concerns continue to mount amid ongoing trade uncertainty, and as risks of a supply glut grow with Opec+ seemingly prepared to further increase output, in what now looks to amount to a war for market share,” Michael Brown, senior research strategist at Pepperstone, told The National.
Prospect of Iran deal
There is also a prospect of more oil flowing into global markets, if a deal is reached between Iran and the US, on possible sanctions relief.
The two countries are currently holding indirect negotiations and are headed for a third round of talks in Muscat on Saturday.
Iran is the third-biggest oil producer in Opec after Saudi Arabia and Iraq.
Earlier this week, Iran said it is looking to reach a nuclear deal in the near future and talks have so far taken place in a “constructive atmosphere”, Iranian government spokeswoman Fatemeh Mohajerani said.
Investors are also focusing on the Russia-Ukraine war and a possible ceasefire that could further boost supply in the market, on the easing of sanctions on major oil producer Russia.
Negotiations involving the US and Russia are moving in the right direction to end the war in Ukraine, but some specific elements of a deal remain to be agreed, Russian Foreign Minister Sergey Lavrov said in an interview with CBS News.
Ukraine has said some elements of the proposed peace deal are unacceptable.
